Planning and Action Steps to Improve Your Mortgage Interest Rate

Homebuyers can plan and take fundamental steps prior to applying for their home mortgage to improve their home mortgage interest rate. Many borrowers never consider their credit score or income to debt ratios until mortgage officers point out that those areas are raising their rates or disqualifying them from the best loan packages. Since a homebuyer’s mortgage is usually a financial investment in their largest asset, preparing for a mortgage is economically well worth the time and effort.

First, use the freecreditreport.com website to check your credit history with the top three credit bureaus. Make sure there are no incorrect entries. If there are accounts that show late payments, or if you have a general history of making late payments, do everything you can to give yourself a 6 to 7 months with no late payments.

Second, create a strategy for your credit cards that you have balances on (or for any active installment loans),  that will:
- Reduce balances on each credit card to below 50%;

• Pay-off any small installment loans and keep any revolving credit cards from gas companies or department stores paid off at the end of the month;
• Reduce your installment loans to one or two (includes mortgages and car loans); and
• Take the steps necessary to reduce the number of your credit card to the 2 or 3 that offer the best interest and lowest annual fees.

In positioning how much balance to have on your credit cards at the time of your loan application, keep in mind the overall level of debt (all car, home, credit cards and appliance loans).

Lenders review your debt-to-income ratio as well as credit score, since the main buyer of mortgages on the secondary market will not accept loans to borrowers whose debt-to-income ratios exceed the Fannie Mae limits. The mortgage (principal and interest) to gross income should be 28% or lower. Your overall monthly debt payments to monthly gross income ratio should be 36% or less.

Third, go to optoutprescreen.com to opt out of free credit card offers. This step both shields you from temptation and improves your credit scores.

Finally, follow your game plan, putting into place the disciplines necessary to carrying out your mortgage rate improvement strategy successfully.

Remember the benefits or your program: Your better credit score reduce both your interest and the amount of your down payment if your credit score was lower than the Fannie Mae levels. With a lower down payment, you may be able to afford a larger home or to live in a more desirable part of town.

Filed under: Money Matters - Business, Money Matters - Personal, Real Estate